20 Second Advisor: This Is CRAZY Math!
You may have heard the terms “Time Value of Money” or “Compounding Interest”. Rather than define them, let me show you a quick example which will make them come alive!
- You begin saving $1,000 / month when you turn 40 years old
- You save the same amount for 30 years
- You earn an average annual return of 8% during this time
- How much money do you have when you turn 70? $1,500,000
- How much did you actually save? $360,000
Think about that…you saved $360,000 over 30 years and you ended up with $1,500,000!
That’s the power of compounding interest. Are you saving enough each month?
This is an illustration only. We compounded the investment return monthly. This assumes you have $0 saved at the beginning. We are not and can not guarantee an 8% annual return.
An 8% return is pretty optimistic isn’t it? Some years yes but seems many years less.
Hey John, we are referring to a long term average return. The actual return each year will almost always be higher or lower than this, but, for a typical growth oriented portfolio, this is a reasonable estimate over the long run. Of course, not everyone is invested in a growth oriented portfolio and this is simply an illustration to convey the power of saving over time. Let us know if you have additional questions!